Judgment liens in bankruptcy have special treatment. Clients in bankruptcy have the reasonable goal of discharging both their debt and the judgment associated with it. In many cases, this can be accomplished.
What Is A Judgment Lien?
A judgment in our context is a court order declaring that a debtor officially owes a creditor. Judgments immediately attach or become a lien against, any property owned by the debtor or later acquired by the debtor. In North Carolina, one exception to this is where a debtor acquires property with a spouse as tenants by the entirety. In this case, the judgment is still effective but does not attach or affect the property.
Will A Judgment Go Away In Bankruptcy?
A better question is will a judgment attach to property acquired after the bankruptcy. The answer is this: If the judgment had attached to property on the date of the filing of the bankruptcy, then it will have the power to attach to newly acquired property after bankruptcy.
Example: John has a judgment against him AND owns a home in his name only. He files bankruptcy. After bankruptcy, he purchases another home in his name only. In this case, the judgment will attach to the newly acquired property.
Example: John has a judgment against him AND owns a home with his wife in both of their names. He files bankruptcy. After bankruptcy, he purchases another home in his name only (or in his name and his spouse’s name). In this case, the judgment will NOT attach. The reason is that prior to filing, the judgment had not become a lien against property he owned. Upon discharge in bankruptcy, his personal liability on the judgment is extinguished.
Will The Judgment Remain On The Public Record?
Absent a motion to the court, the judgment will remain on the public record; however, the effect is the same as in the examples above. In any case where you are purchasing property, the closing attorney will understand the rules and the judgment will not cause a problem with your purchase or later sale of the property.
Every case is unique. If you have questions about bankruptcy or judgment liens in bankruptcy, please call me at 704.749.7747. The call is free and I’m happy to help.